All Is Not Well in Tech Sector, AI Growth Slows, TSMC Expensive. Samsung, SK Hynix More Attractive
The rally of the Asia Tech sector (+24% YTD) is highly concentrated in a handful of stocks. TSMC is up 64% but Samsung is down -22% YTD.
With the exception of AI, end-demand isn’t great.
End-demand in the Consumer and Enterprise segments is flattish; related stocks have underperformed. We see little reason to expect significant growth in 2025.
Important turnarounds in 2025 will be Industrial electronics back to growth in 1H25, Auto electronics bottoming out mid-25.
Smartphone up 8% but below 2019-21 level. PC flattish. x86 Server flattish. Telecom capex declining. Automotive electronics declining.
AI is the most disruptive trend since Cloud in 2010. Years of increasing Capex are in front of us. But short-term, stocks are properly valued to rich, growth is slowing.
AI is the only growth driver but growth is slowing; related stocks have outperformed but are often expensive. We expect AI related Capex to increase in years ahead, but stocks probably need a consolidation period.
Korean Memory looks attractive, both on valuations and low expectations, despite short-term concerns such as high inventory for PC DRAM.